Professional Documents
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CH 07
CH 07
Seventeenth Edition
Chapter 7
Cash and Receivables
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Learning Objectives
After studying this chapter, you should be able to:
1. Indicate how to report cash and related items.
2. Define receivables and explain accounting issues related to
their recognition.
3. Explain accounting issues related to valuation of accounts
receivable.
4. Explain accounting issues related to recognition and
valuation of notes receivable.
5. Explain additional accounting issues related to accounts
and notes receivable.
Variable Consideration
In some cases the price of a good or service is dependent
on future events. These future events often include such
items as discounts, returns and allowances, rebates, and
performance bonuses.
Allowance for
Accounts Doubtful
Blank Receivable Blank Accounts Blank
Beg. 500 25 Beg.
Allowance for
Accounts Doubtful
Blank Receivable Blank Accounts Blank
Beg. 500 25 Beg.
Sale 100
End 600 25 End
Allowance for
Accounts Doubtful
Blank Receivable Blank Accounts Blank
Beg. 500 333 Collect 25 Beg.
Sale 100
End 267 25 End
Allowance for
Accounts Doubtful
Blank Receivable Blank Accounts Blank
Beg. 500 333 Collect 25 Beg.
Sale 100 15 Exp.
End 267 40 End
Allowance for
Accounts Doubtful
Blank Receivable Blank Accounts Blank
Beg. 500 333 Collect 25 Beg.
Sale 100 10 W/O 10 15 Exp.
End 257 30 End
Current Assets:
Cash $ 330
Accounts receivable, net of $30 allowance 227
Merchandise Inventory 812
Prepaid expense 40
Total current assets 1,409
Cash 1,000
Accounts Receivable 1,000
Cash 1,000
Discount on Notes Receivable 142
Interest Revenue 1,142
LO 4 Copyright ©2019 John Wiley & Sons, Inc. 75
Recognition of Notes Receivable
Notes Received for Property, Goods, or Services
In a bargained transaction entered into at arm’s length,
the stated interest rate is presumed to be fair unless:
1. No interest rate is stated, or
2. Stated interest rate is unreasonable, or
3. Face amount of the note is materially different from
the current cash sales price.
Cash 192,000
Finance Charge ($400,000 × 2%) 8,000
Notes Payable 200,000
Cash 350,000
Accounts Receivable 350,000
Cash 50
Petty Cash 50
Cash 542
Office Expense (Bank Charges) 18
Accounts Receivable 220
Accounts Payable 180
Interest Revenue 600